Under FASB standards, how would a not-for-profit recognize a conditional pledge?

• A. As revenue when the pledge is received.
• B. Not recognized until pledge conditions are substantially met.
• C. As revenue at the time of the pledge.
• D. As a separate liability.

Answer: (B)

The main idea is that promises to give are not treated as revenue until the donor-imposed conditions are substantially met. If the pledge is conditional, the nonprofit hasn’t earned the funds yet, so revenue isn’t recognized when the pledge is made or when it is received. Instead, any cash received under a conditional promise is recorded as a liability (a refundable/deferred amount) until the conditions are substantially satisfied. Only then is the amount recognized as contribution revenue and the liability removed.

That’s why the best choice is that a conditional pledge isn’t recognized as revenue until the conditions are substantially met. The other options imply immediate revenue recognition or focus solely on the liability without addressing the timing of revenue recognition.